Who Has Authority to Decide? A Governance Guide for SMEs

In many growing businesses, employees know what they are expected to deliver but remain uncertain about what they are permitted to decide.

A department head may be responsible for meeting an operational target but unable to approve the expenditure required to achieve it. A finance manager may be expected to protect cash flow but have no clear authority to delay or reject an unsupported payment. A human resource manager may be accountable for staffing, yet every appointment, salary adjustment or disciplinary decision still returns to the founder.

The organization may have job descriptions, reporting lines and management titles, but the actual authority structure remains informal.

This creates one of the most common and underestimated governance problems in small and medium-sized businesses:responsibility is assigned, but authority is not clearly delegated.

When decision-making authority is unclear, routine matters are delayed, managers become hesitant, founders become overloaded and accountability becomes difficult to enforce. Employees learn to seek permission rather than exercise judgment, while significant commitments may sometimes be made without proper review.

Good governance should answer a simple but critical question:

Who has authority to decide?

For growing SMEs, the answer should not depend on relationships, urgency, seniority or who happens to be available. It should be defined through a practical governance framework that clarifies responsibility, review, approval and escalation.

Why Decision-Making Authority Becomes Unclear

Most SMEs do not begin with formal authority frameworks.

In the early stages, the founder often makes most decisions personally. The business is small, communication is direct and the founder has close visibility over customers, suppliers, employees and finances.

This model can work effectively when the organization is still compact.

However, as the business grows, more employees, departments, branches, suppliers, customers and financial commitments are introduced. The number of daily decisions increases, but the authority structure may remain unchanged.

This creates a gap between the organization’s size and the way it is governed.

The business may appoint managers without transferring meaningful authority. Approval processes may be communicated verbally. Different departments may follow different practices. Some managers may act confidently because of their relationship with the founder, while others seek approval for even minor matters.

In practice, unclear authority often appears when:

• Managers are accountable for results but cannot approve the resources they need.
• Routine expenditure waits for the chief executive or founder.
• Employees receive conflicting instructions from directors and managers.
• Procurement decisions are approved differently across departments.
• Board members become involved in operational matters.
• Senior employees make commitments without clearly documented limits.
• Verbal approvals replace formal review.
• Urgent decisions bypass normal controls.
• No one is sure which matters should be escalated to the board.
• The organization has policies but no aligned approval structure.

The problem is therefore not simply slow decision-making. It is weak governance clarity.

Responsibility and Authority Are Not the Same

Responsibility refers to what a person is expected to achieve.

Authority refers to what the person is permitted to decide, approve, commit or direct in order to fulfil that responsibility.

The two should be aligned.

For example, a branch manager may be responsible for operational continuity, customer service and cost control. To perform effectively, the manager may need authority to approve routine expenditure, assign staff, address customer complaints and procure urgent supplies within defined limits.

If every matter must be escalated, the manager holds responsibility without authority.

The opposite can also occur. An employee may exercise significant authority without formal accountability. For example, a senior staff member may negotiate supplier terms or approve discounts based on informal influence rather than a defined role.

Both situations create risk.

An effective governance framework should ensure that:

• Every significant responsibility is supported by appropriate authority.
• Authority is attached to roles, not personalities.
• Approval limits are proportionate to risk.
• Higher-risk decisions receive independent review.
• Decisions outside delegated authority are escalated.
• Individuals remain accountable for how authority is exercised.

Authority should empower people to perform, not give them uncontrolled discretion.

Why Unclear Authority Is a Business Risk

Unclear decision-making authority affects more than internal administration. It directly influences performance, control and organizational growth.

Decisions Are Delayed

When employees do not know who can approve a matter, decisions move through unnecessary layers.

A request may pass from an officer to a supervisor, from the supervisor to a manager, from the manager to finance and then to the chief executive, even where the matter is routine and already budgeted.

This increases turnaround time and can affect customers, suppliers, employees and operations.

The delay may be particularly damaging where the business operates across multiple branches or countries. Centralized approvals become increasingly difficult as the organization expands.

Founders and Chief Executives Become Bottlenecks

Where authority is not delegated, the founder or chief executive becomes the default approval point.

They may be required to review expenditure, recruitment, customer discounts, supplier appointments, leave requests, contracts and operational exceptions.

This creates a false sense of control.

The leader may feel closely involved, but the organization becomes dependent on one individual’s availability. Strategic work is displaced by routine approvals, and other leaders fail to develop decision-making capability.

Managers Become Passive

Managers who are repeatedly overruled or required to seek approval for routine matters eventually stop taking initiative.

They learn that the safest approach is to escalate.

This creates a culture in which leaders wait for instructions instead of assessing issues, making recommendations and taking ownership.

The organization may then criticize management for weak leadership, even though the governance structure has not allowed managers to lead.

Accountability Becomes Difficult

It is unreasonable to hold a manager fully accountable for results if they had no authority over the decisions required to achieve them.

When performance is poor, the manager may legitimately argue that recruitment, expenditure, procurement or operational changes were delayed by senior approval.

This makes performance management subjective and encourages blame.

Clear authority creates a fairer basis for accountability because the organization can determine whether the manager acted within the responsibilities and limits assigned to the role.

Controls Become Inconsistent

Where authority is informal, similar decisions may receive different treatment.

One department may require three approvals for a purchase, while another proceeds based on a phone call. One manager may approve customer discounts freely, while another is prohibited from doing so. Emergency exceptions may become permanent practice.

Inconsistency increases the risk of error, favouritism, fraud, conflict and control failure.

Board and Management Roles Overlap

A board should provide oversight, approve reserved matters and hold executive leadership accountable.

It should not routinely approve minor expenditure, supervise employees or select operational suppliers.

Where management authority is unclear, the board may be drawn into daily operations. This weakens management and distracts directors from strategy, risk and executive accountability.

A functional governance system must therefore define not only management authority, but also the boundary between the board and management.

What Decisions Should Be Defined?

A growing SME should identify the major categories of decisions through which the organization commits resources, assumes risk or affects stakeholders.

Financial Decisions

These may include:

• Annual budgets.
• Operating expenditure.
• Capital expenditure.
• Emergency expenditure.
• Bank payments.
• Borrowing.
• Investments.
• Asset disposal.
• Write-offs.
• Customer credit.
• Refunds.
• Discounts.
• Staff advances.

The organization should distinguish between budgeted and unbudgeted expenditure and determine the limits applicable to different roles.

Procurement Decisions

The framework should clarify who may:

• Request goods or services.
• Approve procurement.
• Review quotations.
• Select suppliers.
• Approve single sourcing.
• Sign purchase orders.
• Enter into contracts.
• Approve changes to contract value.
• Accept delivered goods or services.

Separating initiation, review, approval and receipt helps reduce conflict and control risk.

Human Capital Decisions

Employee-related authority may cover:

• Creation of new positions.
• Recruitment approval.
• Candidate selection.
• Salary offers.
• Promotions.
• Salary reviews.
• Training expenditure.
• Leave exceptions.
• Disciplinary action.
• Termination.
• Employee benefits.
• Consultant engagement.

Board approval may be required for the chief executive and selected senior roles, while management handles other positions within an approved structure and budget.

Commercial Decisions

Commercial authority may include:

• Pricing changes.
• Customer discounts.
• Credit terms.
• Tender submissions.
• Contract negotiation.
• Partnership agreements.
• Customer settlements.
• Product launches.
• New market entry.
• Sales incentive changes.

These decisions can create significant financial and reputational exposure and should therefore have appropriate review levels.

Legal and Contractual Decisions

The organization should define who may:

• Sign contracts.
• Appoint legal advisers.
• Initiate or settle legal claims.
• Accept contractual liability.
• Approve warranties or indemnities.
• Enter leases.
• Approve regulatory submissions.
• Commit the company to long-term obligations.

Legal review and final approval may be separate responsibilities.

Strategic and Governance Decisions

Certain matters should normally remain with the board or shareholders, subject to the organization’s legal and governance structure.

These may include:

• Approval of strategy.
• Annual business plans.
• Major investments.
• Significant borrowing.
• Entry into new markets.
• Acquisition or disposal of businesses.
• Appointment of the chief executive.
• Changes in board structure.
• Related-party transactions.
• Approval of key governance policies.
• Major restructuring.
• Changes affecting ownership.

These are commonly referred to as reserved matters.

The Role of a Delegation of Authority Matrix

A Delegation of Authority Matrix provides a structured answer to who may decide, recommend, review, approve or sign different matters.

A practical matrix may identify:

• The person who initiates the matter.
• The person who reviews the request.
• The person who recommends approval.
• The final approving authority.
• The financial or operational limit.
• Any additional control required.
• The escalation level where the threshold is exceeded.
• The person authorized to sign the final commitment.

For example, a department head may initiate and approve routine expenditure within an approved budget up to a defined amount. Finance may confirm budget availability and compliance. Larger expenditure may require chief executive approval, while major commitments may be reserved for the board.

The matrix should enable routine decisions to move quickly while ensuring that higher-risk matters receive appropriate scrutiny.

Decision Rights Should Be Role-Based

Authority should be assigned to positions, not individuals.

This distinction is important because informal authority often develops around personal relationships, seniority or historical practice.

A long-serving employee may exercise more influence than the person formally accountable for the function. A founder’s relative may approve matters without a defined role. A trusted manager may retain authority that no longer matches the organization’s structure.

Role-based authority creates consistency.

It means that when an individual leaves, is promoted or is absent, the organization can determine how authority transfers. It also ensures that employees understand the source of a person’s decision-making power.

Temporary delegation should also be documented. When an approving officer is absent, the acting authority, duration and limits should be clear.

Authority Does Not Remove the Need for Controls

Delegation should improve efficiency, but it should not weaken oversight.

Some decisions require several distinct roles.

For example:

• One person may initiate a purchase.
• Procurement may confirm the sourcing process.
• Finance may verify the budget.
• A manager may approve the expenditure.
• Another person may authorize payment.
• A receiving officer may confirm delivery.

This is often described as separation of duties or maker-checker control.

The purpose is to ensure that no one individual controls the entire transaction.

However, controls should remain proportionate. A low-value routine decision should not require the same approval process as a significant contract or capital investment.

The governance framework should balance speed and control.

The Relationship Between the Board Charter and the DOA

The Board Charter and Delegation of Authority Matrix should operate together.

The Board Charter defines the board’s overall mandate, responsibilities and operating framework.

The DOA translates that mandate into specific decision rights and approval limits.

For example, the Charter may state that the board approves major capital investments. The DOA should then define the financial threshold above which capital expenditure requires board approval.

Similarly, the Charter may delegate daily management to the chief executive. The DOA should specify the chief executive’s approval limits and the authority that may be delegated further to managers.

When the documents are not aligned, uncertainty remains.

The organization may have a Charter that reserves too many matters for the board and a DOA that appears to delegate the same matters to management. Such conflicts should be identified and corrected.

Common Authority Mistakes in SMEs

Every Decision Goes to the Founder

This may feel safe, but it weakens management and slows growth.

The founder should retain authority over genuinely strategic or high-risk decisions while delegating routine matters within defined limits.

Limits Are Too Low

If senior managers must seek approval for minor expenditure, the framework will not improve efficiency.

Approval limits should reflect the size of the organization, departmental budgets and the level of responsibility carried by the role.

Limits Are Too High

Delegating excessive authority without appropriate review can expose the organization to financial loss, inappropriate commitments or fraud.

Authority should increase gradually and be supported by reporting and controls.

The Framework Covers Money Only

Authority also applies to people, contracts, customers, suppliers, data, legal matters and strategy.

An expenditure-only matrix leaves many important decisions unresolved.

Verbal Exceptions Become Normal Practice

An emergency exception may occasionally be necessary.

However, repeated verbal approvals undermine the framework. Exceptions should be documented, justified and reviewed.

The Board Interferes in Management

Directors may become involved in operational approvals because they want to protect the business.

However, this can weaken the chief executive and blur accountability.

The board should approve reserved matters and oversee management rather than run daily operations.

Managers Are Not Trained

A matrix cannot improve governance if managers do not understand it.

Employees should know their limits, supporting documentation requirements, escalation process and consequences of acting outside authority.

How to Develop a Practical Decision-Making Framework

The process should begin with the organization’s actual decisions, not a generic template.

Map Current Decisions

Identify the major decisions currently made across finance, HR, procurement, operations, sales, legal and governance.

Determine:

• Who currently initiates them.
• Who reviews them.
• Who approves them.
• Where delays occur.
• Where controls are weak.
• Which decisions are over-centralized.
• Which decisions are made without proper authority.

Assess Risk and Materiality

Not every decision requires the same level of control.

Consider:

• Financial value.
• Legal exposure.
• Reputational impact.
• Employee impact.
• Customer impact.
• Strategic significance.
• Irreversibility.
• Regulatory requirements.

Higher-risk matters should require stronger review and senior approval.

Match Authority to Roles

Review job responsibilities and assign authority that allows each role to perform effectively.

Authority should reflect competence, seniority, accountability and access to information.

Define Reserved Matters

Clearly identify decisions that remain with shareholders or the board.

This prevents management from exceeding its mandate and protects directors from becoming involved in routine operations.

Establish Escalation Procedures

The framework should explain what happens when:

• A decision exceeds the approval limit.
• The approving officer is absent.
• The matter is urgent.
• There is disagreement.
• The expenditure is unbudgeted.
• A conflict of interest exists.
• An exception is required.

Approve and Communicate the Framework

The appropriate governance body should approve the final document.

Managers and employees should then be trained on how it works.

Align Systems and Policies

Approval workflows, procurement procedures, payment systems, HR policies, contract processes and enterprise systems should reflect the agreed authority structure.

Review Regularly

Authority limits should be reviewed when the business changes materially.

This may occur following:

• Growth in revenue.
• New branches.
• Restructuring.
• Changes in leadership.
• Introduction of a board.
• Entry into a new market.
• Implementation of new systems.
• Changes in risk exposure.

Signs Your SME Needs Clearer Decision Authority

Your organization may need a governance review where:

• Routine decisions wait for the founder.
• Managers frequently ask who should approve.
• Employees rely on WhatsApp or verbal approvals.
• The board is involved in operational matters.
• Similar decisions are handled differently.
• Managers are accountable but not empowered.
• Significant commitments are made without proper review.
• Approval disputes delay operations.
• Acting authority is unclear during absence.
• New branches operate with inconsistent limits.
• Policies and approval processes conflict.
• Decisions cannot be traced after they are made.

These are signs that the business has outgrown informal authority.

When External Governance Support Is Useful

Developing decision authority requires an understanding of both governance and daily operations.

External support may be valuable where:

• The company is transitioning from founder-led management.
• A new board is being established.
• Management roles are being restructured.
• Approval delays are affecting performance.
• Financial and procurement controls require strengthening.
• The company is opening branches or expanding regionally.
• Existing authority limits are unclear or outdated.
• Board and management responsibilities overlap.
• The organization is implementing a new system.
• Investors or lenders require stronger governance.

ACCUREX supports growing organizations to clarify authority, strengthen accountability and establish governance frameworks suited to their size and operating realities.

This may include:

• Governance readiness assessments.
• Board Charters.
• Delegation of Authority Matrices.
• Committee Charters.
• Management authority frameworks.
• Organizational structure reviews.
• Job and accountability alignment.
• Board and management role clarification.
• Governance implementation support.

The objective is not to make every decision more formal. It is to ensure that decisions are made by the right people, at the right level, with the right controls.

Clear Authority Creates Better Accountability

A growing organization cannot rely indefinitely on informal approval, personal trust and founder availability.

As the business becomes more complex, decision rights must become more deliberate.

Managers need enough authority to deliver results.

The chief executive needs enough authority to run the organization.

The board needs clarity on which matters require oversight and approval.

Employees need to understand when to act and when to escalate.

A well-designed governance framework makes this possible.

It does not remove judgment. It creates boundaries within which judgment can be exercised responsibly.

The strongest organizations do not centralize every decision in the name of control. They distribute authority carefully, support it with appropriate safeguards and hold each role accountable for how that authority is used.

Clarify Who Has Authority to Decide

ACCUREX helps SMEs and growing organizations develop practical governance frameworks that clarify decision-making authority across the board, chief executive and management team.

Organizations experiencing approval delays, founder dependence, overlapping authority or inconsistent decisions may request anACCUREX Decision Authority and Governance Review.

The review examines current approval processes, role responsibilities, board reserved matters, management limits, escalation procedures and control requirements to develop a practical Delegation of Authority framework.

Visit:www.accurex.co.ke
Email:info@accurex.co.ke